Universal Music Group NV on Wednesday disclosed plans to sell 50% of its stake in Spotify Technology SA and to increase its share buyback commitment to a total of €1.0 billion.
The company said it will initiate an additional €500 million repurchase program to follow the €500 million buyback it announced in March. Together, the two programs will amount to €1 billion of planned share repurchases.
The move comes as the Netherlands-based music company contends with questions about its market valuation raised publicly by billionaire investor Bill Ackman. Ackman has submitted an offer to acquire the record label that values it at approximately $65 billion.
In detailing his proposal, Ackman said he would sell the company’s entire Spotify stake to generate about €1.5 billion - after taxes and payments to artists, according to the company summary of his plan. Universal Music's chief executive, Lucian Grainge, told analysts on a call reviewing the group's financial results that the company would refrain from commenting on Ackman's offer until the board's review concludes.
Universal Music, which represents artists such as Taylor Swift, Kendrick Lamar, Billie Eilish and the Beatles, reported that first-quarter subscription revenue increased 12.5% on a constant-currency basis to €1.3 billion. That outcome exceeded analyst expectations cited by the company, which had projected 10.1% growth.
The company attributed subscription growth to a combination of price increases, its Streaming 2.0 initiative aimed at lifting revenue per user through premium tiering and monetization of highly engaged fans, and the recent acquisition of Downtown Music. On a constant-currency basis, total revenue rose 8.1% to €2.9 billion.
Pershing Square Capital Management, the vehicle through which Ackman is pursuing the proposal, holds more than 4.5% of Universal Music's shares. Pershing Square is pressing to merge Universal Music with a specially-created acquisition vehicle that would be publicly traded in the United States. Ackman has argued the shares are undervalued and has advocated shifting the company’s listing to New York and reorganizing its financial reporting.
Summary
Universal Music will dispose of half of its Spotify stake and expand its repurchase program by adding a second €500 million buyback, bringing total announced share repurchases to €1 billion. The announcement coincides with an activist campaign led by Pershing Square that has proposed a $65 billion acquisition and urged strategic changes, including a potential relocation of the listing to New York. The company reported stronger-than-expected subscription revenue growth in the first quarter and cited price increases, Streaming 2.0, and the Downtown Music acquisition as drivers.
Key points
- Universal Music will sell half of its Spotify stake and increase share buybacks to €1 billion - a capital-return action likely to affect equity holders and market liquidity.
- First-quarter subscription revenue rose 12.5% on a constant-currency basis to €1.3 billion, outpacing analysts' 10.1% estimate; total revenue climbed 8.1% to €2.9 billion, indicating continued top-line momentum in music streaming and related services.
- Pershing Square, which owns more than 4.5% of Universal Music, is advocating a corporate reorganization, a potential move of the listing to New York, and a transaction structure that would include divesting the Spotify stake - steps that would reshape the company's investor profile and reporting.
Risks and uncertainties
- Outcome of the board review - The company has declined to comment further until the board completes its review of Ackman's proposal, leaving uncertainty about whether any transaction or strategic shifts will proceed.
- Potential market and ownership effects from selling Spotify shares - A partial divestment of the Spotify holding could influence both Universal Music's investment profile and broader market dynamics for Spotify shares.
- Execution risk for strategic initiatives - The benefits the company cites for subscription growth, including Streaming 2.0 and the Downtown Music acquisition, depend on continued execution; any slowdown could affect revenue momentum.
These developments touch the music and streaming sectors directly and carry implications for equity markets and corporate governance in media and entertainment. The company’s capital-return program and the activist proposal create a period of strategic review that investors and stakeholders will follow closely.